Delaware court denies stockholder's request to inspect Tempur Sealy books and records

By Gabriel Neves | Feb 20, 2019

WILMINGTON, Del. (Legal Newsline) – A Tempur Sealy stockholder who requested to inspect the company's books and records to prove an alleged breach of contract has suffered a loss in court.

Judge Joseph Slights III, on the bench of the Delaware Chancery Court, issued a 40-page ruling on Feb. 12, denying a request to inspect in the lawsuit filed by David Hoeller against Tempur Sealy International Inc.

The court denied Hoeller's request to inspect Tempur Sealy's books and records claiming there were no false statements on behalf of the company, as well as any other company wrongdoing could not be found.

Hoeller sued the mattress company alleging that its board of directors abruptly terminated a sales contract with retailer Mattress Firm, claiming the company's CEO Scott Thompson exposed the company to breaches of contract and of fiduciary duty and to securities fraud liability.

As stated in the ruling, "For two decades, Defendant, Tempur Sealy International Inc., supplied mattresses, bedding and furniture to Mattress Firm Holding Co. for sale in Mattress Firm stores across the country," becoming Tempur Sealy's largest customer, accounting for more than 20 percent of the company's sales.

But one fact changed the picture.

"The relationship changed, however, in August 2016 when Mattress Firm was acquired by a European company with a vertically integrated product line that included a mattress supply chain. Despite the risk that Mattress Firm’s supply needs might be met by its new parent, Tempur Sealy’s CEO, Scott L. Thompson, repeatedly told the market he was optimistic about the strength of Tempur Sealy’s continuing relationship with Mattress Firm. 

"His optimism was misplaced. In January 2017, Mattress Firm terminated its contracts with Tempur Sealy and breach of contract litigation between the parties soon followed," the ruling said.

After the fact, Hoeller requested the books and records, and alleged, per the ruling, that "Tempur Sealy’s relationship with Mattress Firm was so significant, and the termination of the Mattress Firm contracts was so abrupt, that the Tempur Sealy board of directors and senior management must have breached their fiduciary duties by failing to retain Mattress Firm’s business and by exposing Tempur Sealy to breach of contract damages."

In his ruling, Slights stated that "plaintiff has failed to provide any evidence that Thompson knew his statements were false when made or that he did not believe the company’s future with Mattress Firm would be successful when he made his forward-looking statements to that effect," adding that "considering that active negotiations continued right up to the Las Vegas convention where Mattress Firm announced its decision to terminate, I cannot conclude as factfinder that the timing of the termination in relation to the allegedly false statements supports any inference that the speaker knew the statements to be false."

Delaware Court of Chancery case number 2018-0336-JRS

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